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Equity release specialists are crying out for greater innovation in its product range to lenders at a time when the lifetime mortgage market potentially enters the biggest growth phase of its history. Failure to do so could result in products such as the new Marsden Building Society Retirement Mortgage & the Vernon Interest Only Retirement Mortgage shaping retirement lending to the over 55’s in the years to come.

Here I would like to share my views on why the equity release industry needs a major rethink of its products, understands more of its consumer requirements & how some of the smaller lenders such as Marsden & Vernon may have an impact on this thought process, even future product design.

Is Equity Release Innovating Sufficiently?

The launch in September 2015 of the Marsden Retirement Mortgage could represent a wake up call to equity release companies, which until now have offered little in the way of sweeping changes, consistent with driving the post retirement lending market forward.

Until now, lending into retirement has been hampered by the after effects of MMR (Mortgage Market Review) and how lenders gauge affordability for pensioner mortgages. This has seen terms ‘interest only time bomb’ being banded about as high street lenders start reigning in their mortgage book, when normally then would have renewed or extended mortgage terms. This has left mortgagors stranded with the dilemma of having to decide whether to sell & downsize, or find alternative lending such as lifetime mortgages.

These mortgage prisoners have been one of the main reasons why the equity release industry has seen major growth recently & should not be fooled somewhat into thinking it itself has played a part in its own expansion. Equity release must not become Mr Complacency. People looking to offload their traditional mortgages in favour of a voluntary repayment lifetime mortgage or interest only lifetime mortgage has been clearly evident at Equity Release Supermarket. This market has still not reached its peak, yet innovative products are still out of reach for this purge in demand awaiting redemption & rebirth.

The Corridor of Uncertainty that exists between Residential Mortgages & Equity Release

With some recent relaxation in retirement lending rules, some residential mortgage lenders are set to take advantage by introducing retirement mortgage products that can fill the ‘corridor of uncertainty’ between the traditional mortgage market & equity release schemes. This void exists due to the gap in both distribution and the advisory process, but mainly the lack of products that can fill this area.

For instance people looking to borrow at age 60 over say a 20 year term looking for a 40% release of equity would struggle currently to raise such an amount. The reason being mortgage lenders are frowning upon lending beyond 70-75 and equity release providers have loan-to-value ratios at 60 that are insufficient to release this amount. So where can these people go?

Their prospects are currently limited to several companies, one of which is only accessible via advisers with lifetime mortgage permissions. This is the creditable Hodge Retirement Mortgage. Several smaller, local building societies will lend on an individually underwritten basis, but are obscure in research and not looking for large mortgage books for this kind of product. We saw this effect when the Halifax Retirement Home Plan eventually had to be withdrawn due to demand in July 2011.

The future of the equity release market lies in the hands of the lenders who define the products on offer to the over 55 lifetime mortgage brigade. 2015 for me is the landmark year that could evidence how these products are to be aligned in the years to come. With the upheaval to annuity sales and the new pension freedoms in place, equity release has remained too rigid in concept, yet has seen buoyancy, despite its many detractors in the press. Yes this is positive news, yet does not address the underlying issues within the equity release industry.

How Non-Traditional Equity Release Companies Can offer Equity Release

Recent news & industry talk is that smaller traditional building society’s are set to move in to the retirement lending space, which effectively could throw a spanner in the works of some equity release lenders and advisory firms who do not embrace these products. The term ‘equity release’ is generic, yet advisers & product providers alike, associate this term with either a lifetime mortgage or home reversion scheme.

Wrong! Equity release simply attributes itself to any form of mortgage vehicle then enables the release of equity from a homeowner’s property. The industry needs to move away from the stigma of historic equity release terminology & move into a new era of flexibility, innovation & a market not defined by just 9 lenders offering copycat products. If these lenders do not embrace the changes needed, other traditional lenders could spot their opportunity & move in.

This has started already. With news of two new bold retirement mortgages from what would be classed as two of the somewhat ‘smaller’ building societies. The first to launch was the Vernon Building Society’s Interest Only Retirement Mortgage with two rates dependent upon whether a LPA (Lasting Power of Attorney) was in place & registered with the Court of Protection; an unusual move, but clever thinking behind this. The Vernon’s non-LPA rate at 4.45% (4.9% representative APR) is actually higher than the Hodge Retirement Mortgage at 4.39% (4.7% representative APR), so a welcome addition, but not groundbreaking.

Why the Marsden Retirement Mortgage is Competitively Advantaged

The launch of the Marsden Retirement Mortgage plan is significantly different to the Hodge Retirement Mortgage. The Marsden has no affiliation with the Equity Release Council and therefore no constraints with regards to no negative equity guarantees and membership. This can provide greater freedom & the passage of savings in interest, clearly evident on this products launch interest rates of either 2.79% or 2.99% discounted rates, dependent on whether the interest only, or capital & interest route is selected.

The Marsden Building Society have made this semi exclusive retirement mortgage plan only available only through qualified intermediaries. This is not a direct to consumer product and is a move commensurate with ensuring best advice is given to a potentially vulnerable age group.

The Marsden Retirement Mortgage Product in Finer Detail

The minimum age at application for this mortgage in retirement product is age 55, with a maximum term being 30 years, hence this is not a lifetime mortgage. It is available to anyone looking to make a new house purchase, remortgage away from an existing mortgage provider, maybe due to expiry, or even general capital raising purposes where no mortgage exists currently. This could be for home improvements, gifting to children/family or any other lifestyle choices that make an improvement to their standard of living in retirement.

This Marsden pensioner mortgage is available on an interest only retirement mortgage basis or even capital & repayment. The option selected will be reflected in the interest rate which at launch in September 2015 are discounted until 31.01.18 at which point it will revert to the Marsden standard variable rate currently 5.95%. At this point no early repayment charges will exist.

The minimum release of equity is £50,000 and the maximum loan that would be considered is £500,000. Properties are accepted in England & Wales only & must be valued at least £200,000.

Set up costs are competitive priced compared to equity release schemes. There is a free valuation on properties upto £500,000 and booking fee & arrangement fees of £299 each. For remortgages a fee assisted package is available where standard legals fees are covered along with free valuation fee as previously mentioned.

Other essential features of this retirement mortgage are as follows: –

Income multiples are 4.5x single & joint incomes, subject to affordability checks

Minimum income levels are £20,000pa, either single or joint.

Only pension income can be accepted, but rental & investment income can be considered

For interest only a sensible repayment method must be in place at the end of the term

Summary

The way forward for the post retirement lending arena is a swathe of flexible, transparent mortgage plans that meet the varied need of retirees. Whether this be a lifetime mortgage, retirement mortgage or interest only lifetime mortgage the key word is CHOICE. The Marsden Retirement Mortgage is just the start of new lenders filling the void between equity release plans & standard residential mortgages.

Further evidence of the progress & changes within the equity release industry has been witnessed this week after Stonehaven rebranded its name to ‘Retirement Advantage’. With effect from 26th May 2015, all Stonehaven’s equity release plans will come under the umbrella of Retirement Advantage.

Who are Stonehaven?

Stonehaven equity release was formed in 2006 as a provider of not just traditional lump sum lifetime mortgages, but innovative interest only lifetime mortgages with a difference. Their concept of being able to service the interest, thus rendering a level lifetime mortgage balance outlived the more conventional mortgage products such as the Halifax Retirement Home Plan which was withdrawn in August 2011.

Stonehaven = Innovation

To date, the Stonehaven range of interest only lifetime mortgages have stood the test of time. It is only recently that new hybrid versions of the Stonehaven Interest Select plans have been developed & now introduced. These voluntary repayment plans from the likes of Hodge Lifetime, Aviva, Newlife & now following suit – Stonehaven, have revolutionised the way equity release is perceived. It is now just the general public & journalists who need to take note of the new wave of flexible lifetime mortgages that can be tailored to any client’s requirements.

Stonehaven’s Recent history

Stonehaven’s success resulted in the company being taken over by MGM in 2014 and slowly their products have been redesigned & renamed accordingly, with a simplification of their offering – Interest Select, Lump Sum & Voluntary Select. Each product now has two further options depending on the level of borrowing required (loan-to-value) & ultimately also affects the interest rate applied. Board level changes have since occurred and the people who were at the core of their initial operation and built their model around the wider distribution model of using mortgage intermediaries as a source of referral business, have since departed.

The New Retirement Arena

We now have a new era in retirement planning & finances. With the demographics of the UK changing, longevity & health factors all combining to make insurers change the way the retirement landscape is evolving. The recent annuity changes have impacted severely on annuity providers of which MGM Advantage has been a major player in this market. These annuity & life insurance companies have had to rethink how retirees will need to manage their finances and stretch them further into retirement. This is probably only the start of what is to come for the over 55’s in the new retirement arena as new products are developed to cater for their needs.

MGM and Stonehaven Together = Retirement Advantage

Bringing together two successful retirement companies should lead to a complement of retirement products that can provide retirement solutions. Both MGM Advantage’s annuity and Stonehaven’s lifetime mortgage products are therefore suited to this retirement solution goal. The new retirement brand of Retirement Advantage will further strengthen their retirement proposition with a new retirement account launching soon.

Retirement Advantage is therefore one of the first significant mergers we may see in the retirement arena as equity lenders & insurers vie for the ever more lucrative retirement space. Equity release and annuities are changing for the better, hopefully the sign of more innovative thinking ahead.

For details on Retirement Advantage product range visit our website here where all their lifetime mortgage deals are listed along with a quote request facility.

When many equity release providers are competing directly in using their lifetime mortgage interest rates, Stonehaven have decided to compete in a different field by taking the bold step of moving away from Gilt-based early repayment charges (ERC’s) & introducing a fixed penalty basis covering the first eight years of the equity release loan.

With effect from 16th March 2015, Stonehaven will move its whole lump sum & interest only lifetime mortgage range of plans over to an 8 year fixed early repayment charge of 5% in the first 5 years, 3% in years 6-8 and none in the 9th year & thereafter.

Background to Equity Release Early Repayment Charges

Due to the nature of the product – ‘Lifetime’ Mortgage, the plans have been designed to run for the rest of the homeowners life. This can create uneasiness for some people taking out equity release schemes in retirement as they cannot always say with certainty what their future plans entail with regards to their property.

Equity release early repayment charges have historically been a mixture of fixed penalty, gilt based, Bank of England base rate related and even long term interest rates called SWAP rates. The majority of equity release schemes across the market today is predominantly linked to government gilts. This can be in the form of an individually selected gilt such as Aviva’s, which is based on the age of the youngest homeowner, or follow an index of gilts such as the FTSE UK Gilts 15 Year Yield Index with Just Retirement.

These gilt related penalties on paper can look extreme given that Aviva can charge upto 25% of the amount repaid dependent upon the gilts yield falling from inception. Additionally, companies such as Just Retirement & Pure Retirement can charge a maximum of 20% of the fall in the FTSE UK Gilts 15 Year Yield Index. Therefore, the nature of gilts leads to uncertainty of their future levels & consequently any prediction regards their future level is unknown & cannot therefore be relied upon for early repayment purposes.

Currently, only one equity release company offers the certainty of knowing exactly what the future penalty could potential be; this company is LV= (Liverpool Victoria). Charging 5% for the first 5 years of the amount repaid & then 3% in the next 5 years, they actually have no early repayment charges after 10 years. This have given them a niche position within the equity release marketplace.

Stonehaven’s Move to Fixed Equity Release Early Repayment Charges

However, LV= equity release now have fresh competition and this is the beauty of where the equity release industry is right now. Competition is driving this market forward and its with such innovations & product development that is going to extend the volume of lending in 2015, to beyond the £14 billion released in 2014.

Stonehaven have been considering this move previously, however with their takeover by MGM, its plans were put on hold. With a new team behind Stonehaven now, they have obviously decided the time is now right to introduce fixed penalty equity release plan to the market. It will be interesting to see how these new fixed ERC’s are perceived. Historically, applying fixed rate early repayment charges can come at a cost and this is usually borne in the equity release interest rate with an extra levy on it.

At present Stonehaven have not indicated any changes to their interest rates with the lowest currently being the Stonehaven Interest Select Lite plan at 5.46% monthly (5.87% representative APR). Therefore, the fixed penalty charges look to have been absorbed into the current equity release deals on record.

So for anyone considering the equity release & uncertain regards whether an equity release scheme will be required over the longer term, the new equity release early repayment charge from Stonehaven could be a viable option to consider. Providing fixed, transparent & easy to understand ERC’s with just 5% penalty in the first 5 years, 3% for the next two & zero after the end of the 8th year, Stonehaven have taken over LV=’s mantle of potentially the best early repayment charging system available in the equity release market today!

Further Information

To learn more about Stonehaven’s range of products attracting the new 8 year fixed penalty, please contact the Equity Release Supermarket team on 0800 783 9652 or email mark@equityreleasesupermarket.co.uk.

These new flexible repayment features provide customers with the ability to manage the future balance of their equity release schemes. However, further additions have been made which are a credit to the forward thinking of Aviva’s hierarchy.

The two further equity release options now included into both plans are the enhanced lifetime mortgage option and an early repayment exemption charge.

Let’s look at each option individually and understand why & how each new feature could potentially benefit future Aviva equity release plan holders.

Enhanced Lifetime Mortgage Option

Previously, only the Aviva Lump Sum Max plan had the enhanced (also known as impaired lifetime mortgage) equity release facility. This means that anyone who has a history, or has medical records indicating they meet a list of qualifying illnesses could benefit from uplift in the maximum equity release lump sum they could receive.

However, Aviva has now put a reverse spin on how this equity release enhancement can work. Rather than the enhancement working to increase the maximum lump sum, they have reversed this by applying a twist on how the enhancement can operate. Therefore, on the revised Aviva Lifestyle Flexi plan now, should illness permit qualification for enhanced terms, then the interest rate will be REDUCED. Consequently, retirees looking for a release of equity & qualify for enhanced terms will receive a lower interest rate than the normal equity release rate.

No enhanced mortgage company has considered this approach previously, so why does Aviva now & how does this work?

Qualification rules for the enhanced lifestyle flexi plan

Firstly, Aviva will request a Health & Lifestyle Questionnaire be completed which will ask questions to ascertain eligibility for enhanced terms. Such health questions include:

Should any of these, or combination of these establish qualification for enhanced rates then a Key Facts Illustration can be generated by your equity release adviser. If terms are then acceptable & an application follows, then as part of the enhanced lifetime mortgage application process Aviva will clarify with your doctor whether your stated health issues are on your medical records. No medical examination will be required.

Whereas previously the minimum rate for the Aviva Lifestyle Flexi was 5.68%, if enhanced terms are available due to ill-health, then the rate can be reduced by a further 0.05% to just 5.63% (rate @1.6.14). Not a significant reduction it may seem, however considering roll-up of the interest and the compounding nature of the future balance this could save your beneficiaries a considerable sum of money in their future inheritance.

Therefore, in summary a lower equity release interest rate can be achieved by qualifying for enhanced terms due to poor health on the Aviva Lifestyle Flexi plan which also comes with the drawdown option. Possibly the best equity release plan in the current marketplace due to the extra low interest rate, cashback of £1000, free valuation, drawdown facility & the strength of the Aviva brand.

*A point to note here is that not all companies offer the same enhanced rates. Check you can at least obtain rates that are independent & NOT from Aviva direct as they will not be lower than companies such as Equity Release Supermarkets.

Early repayment charge exemption

Since I originally advised on Aviva’s equity release plans almost 15 years ago, there has always been a stigma attached to their calculation of early repayment charges which can be upto a maximum of 25% of the original amount borrowed. The link with government gilt rates can be also confusing to many customers when calculating how they work in practice. Nevertheless a qualified equity release adviser should be able to assist with such calculations.

News stories have also highlighted cause for concern with potential early repayment charges. These charges have always been shown on their Key Facts documents, however occasionally situations can arise whereby even the flexible nature of these schemes cannot compensate for some unfortunate scenarios.

One notable example of this was the news story where someone needed to move into long term care with their partner following in order to provide their care in the home. This left them with an empty home and little option other than needing to sell up as they cannot rent out or leave the property unattended. With this being forced on them, they could incur a hefty penalty for repaying the equity release loan early based on the ruling that the partner did not need to move into care aswell.

Welcome changes to Aviva’s early repayment charges

Following examples of unfortunate events as previous which hit the tabloids, Aviva have since changed their plans to account for such scenarios and this is welcomed.

On plans now, the rules have changed should clients with a joint Aviva lifetime mortgage need to repay the loan due to death or moving into a long-term care facility. If such an event occurs Aviva will now allow repayment of the lifetime mortgage free of any early repayment charge. However, the condition is that this is actioned within THREE years of one of the client’s death or the date Aviva is advised that one of the mortgagors requires long-term care.

Therefore, in the above scenario their plight would have be accounted for and NO early repayment charge would be applicable. This will apply to many other people where at such a stressful time, the last thing they wish for is for another penalty to be applied in their lives. A simple concept which can have such alleviating consequences and has therefore to be commended.

Pure Retirement recently became the latest equity release provider to enter the lifetime mortgage market. Launched in January 2014, it signalled the re-emerging confidence & growing popularity in the equity release market.

However, it makes no sense for a new lender to enter the market without finding a niche for itself. So, over the past few months Equity Release Supermarket advisers have encountered practical experience of where the Pure Drawdown Plan has fitted in providing best advice scenarios. Here we help explain where we feel the Pure Retirement Plan wins, in an already competitive equity release marketplace.

First, the Pure Drawdown Plan in Detail

Before we enter the wheres & wherefores of how the Pure Plan fits in with equity release recommendations, let’s look at the Pure Retirement plan facts…

The Pure Retirement Drawdown Plan is the first offering from the new lender formed by funding assistance from equity release brokerage – Age Partnership. This follows the similar relationship that exists between more2life & Key Retirement Solutions and represents a growing trend where brokers have become equity release providers. This similarity is also evidenced from where the funding source is derived, in that Pure Retirement relies also on the same annuity backed insurer to give it the ability to fund its lending – Partnership Assurance.

The Pure Drawdown plan is a lifetime mortgage that starts later in life than most equity release schemes with a minimum age at commencement of 70. It’s aimed towards the higher end of the loan-to-value ratios without any medical underwriting, which the enhanced lifetime mortgage plans have the advantage of.

The starting percentage is 36% of the property value at age 70, which compares favourably with other high LTV products. Albeits not the highest maximum equity release plan out there, it has a neat trick up its sleeve with how it can still compete with these maximum lifetime mortgage plans. Details of how are explained later in this article.

As a member of the Equity Release Council, the Pure Drawdown Plan offers a free no-negative equity guarantee and 100% ownership of the home. Portability enables you to still move house once the plan has been set in force and the interest rate is fixed for life, launched at a reasonably competitive 6.74% monthly rate (7.1% representative APR).

The minimum loan is higher than most at £25,000, which is where Pure Retirement’s market lies and is available in England, Scotland & Wales.

This is a roll-up lifetime mortgage plan with the option of a cash reserve facility. Therefore, Pure Retirement will calculate the maximum release possible, from which an initial amount can be withdrawn. Any funds untaken, remain in a cash reserve held by Pure Retirement at no cost until needed in the future. Should it later be necessary to access these funds, they can be drawndown in minimum amounts of £5,000 with no further charges.

Where Pure Retirement Lifetime Mortgage Strengths Lie

As an independent equity release adviser, one of the most common reasons for client objection lies in the costs of implementing an equity release scheme. Here is where the Pure Drawdown Plan wins – set up costs!

Only one equity release company has previously offered a scheme whereby the standard terms dictate a cost effective route to market for any client taking out a lifetime mortgage, & that’s Partnership’s Enhanced Lifetime Mortgage. Some lenders will temporarily create pockets of time whereby a cashback exists or a reduced interest rate for a limited period, but these come & go.

However, Pure have created these features as a permanent fixture & all credit to them in seeing this gap in the market and understanding what the consumer requires. Afterall, many applicants want a release of equity to help them financially as they have limited funds in the first place. By asking them for more money up front, it makes the process more difficult for them to get the whole application underway. Pure Retirement alleviate these areas, both pre & post application stages, let me explain how and why.

Pure’s Set up Costs

Pure Retirement provide a two tier set up cost operation; one for equity release loans between £25,000 & £44,999, the other based on loans in excess of £45,000.

All equity release schemes will normally incur set up fees in four main areas – Valuation, application, solicitor & adviser charges.

Pure approach this differently in the sense they aim to cover the majority of costs; the more one borrows, the greater the help provided. For loans over £45,000 the cost is enhanced furthermore by them providing: –

FREE valuation

NO application fee

Contribution of £600 towards legal costs

Contribution of £500 towards the advice fee

Therefore, dependent upon how much the advice fee being charged is, which in the case of Equity Release Supermarket its £895; the net advice fee cost would only be £395. Bearing in mind we can source an ERSA equity release solicitor, for a reasonable £495 + VAT & disbursements (including home visit) the £600 contribution from Pure Retirement should cover this on a standard freehold property. This effectively means to implement a Pure Drawdown Plan with Equity Release Supermarket would only cost approximately £395!

Where Does the Pure Retirement Plan Offer Clients Best Advice?

As previously stated, Pure Retirement Drawdown Plan has been targeted to meet those clients looking towards a maximum equity release in order to assist them with their retirement needs.

A recent example of how the Pure Drawdown Plan can still offer a client a greater net amount, even though the maximum release is lower than a competitor, can be illustrated by a case I recently encountered: –

CASE STUDY

Pam, aged 79 was looking to move property & required a lifetime mortgage to help her with the purchase. She was in good health & needed the maximum release possible to not only help with the purchase but also the moving costs & legal fees.

The purchase price for the 3 bedroom flat in Cornwall is £140,000.

Pamela requires the maximum release possible which following extensive research would point towards the Just Retirement Lump Sum Plus plan which would release £64,400 at an annual interest rate of 6.75%. This comes with a free valuation, £600 application fee, legal costs & advice fee.

Looking further down our research table identifies the Pure Drawdown Plan with a 6.74% monthly interest rate. However, the maximum release Pure would offer would be a lower amount of £63,000. But upon delving deeper into this product & by analysing the charging structure it shows that the actual Pure Retirement net release could be higher.

Fee Type /Provider

Valuation

Application

Legals

Advice

Legal Contribution

Advice Contribution

Net Costs

Just Retirement

FREE

£600

£600

£895

£0

£0

£2095

Pure Retirement

FREE

£0

£600

£895

£600

£500

£395

Evidently, the Pure Retirement plan has £1700 reduced set up costs, compared to the Just Retirement plan. The next part of this calculation is then offsetting this £1700 advantage that Pure Retirement has against the £1400 extra that Just Retirement can release as their maximum.

The final result therefore shows that Pure Retirement will have a greater net release to Pam of £300 and therefore proceeds with the recommendation as the £300 would be more advantageous in her pocket.

The message therefore is never look at the top line maximum amount, but always to consider any incentives that may help improve the net offering.

Existing Equity Release Customers Looking for Additional Funds

Other areas where Equity Release Supermarket customers have already benefitted from the new Pure Retirement lifetime mortgage is under two scenarios: –

Where they have an existing equity release plan & need further funds.

If looking to obtain a lower interest rate, yet no lender can provide sufficient funds to enable the equity release remortgage

Following the routine check to see if any additional borrowings are available with their existing lender, it’s then our duty to research the whole of the market to see if any other equity release providers could assist.

One of the issues against switching equity release schemes is usually the set up costs that prohibit the transfer. Under the two scenarios, in the first the charges could swallow up any of the spare cash being targeted, and in the 2nd scenario the set up costs make any transfer non-profitable as these costs offset any future savings in interest.

Its therefore the case that set up costs can prevent future maneuverability with any home equity scheme.

This is where the Pure Retirement Drawdown Plan can come into its own with its lower set up costs. Under both scenarios, Pure’s reduced set up costs will help with the switching of equity release schemes. Under the 1st scenario it will lead to more funds being available to withdraw & secondly in obtaining a lower interest rate its helps bring forward the break-even point.

Summary

Set up costs are an important aspect in the consideration of accepting any equity release recommendation. However, your adviser should consider the whole picture and features necessary in your meeting your requirements. This is why any equity release adviser should be experienced, qualified and importantly independent too.

Having been in the equity release industry for the past 14 years, there has never been as much optimism & confidence in this sector as there is now. Against a backdrop of reductions & barriers to lending in retirement, the equity release marketplace is expanding faster than most other areas of financial services.

Equity release 2014 holds the greatest number of reasons why the over 55 age group are now considering equity release schemes as their route to financial freedom & lifestyle improvements.

But first we need to understand the issues arising in 2014 for many retirees and how the stress associated with managing retirement finances can be alleviated. Furthermore, we’ll discuss why there is a change in attitude towards equity release, people’s inheritance and how the equity release lenders are developing products to meet the future needs of today’s baby boomers.

So why now & what are the reasons?

Firstly, it looks like 2013 laid the foundations for the recovery of the equity release market. A record £106billion equity release lending took place, which was a 10% increase on the previous year and this takes us back to the halcyon equity release days of 2006. But the numbers do not explain the underlying reasons, only the resultant effect.

I believe the huge growth in demand is down to a number of factors as follows:-

1. Baby Boomers – Primarily there are a record number of so called ‘baby boomers’ who are reaching retirement age. It is estimated that up until 2018 record numbers of upto 700,000 people will turn 65 each year and begin to draw their pensions and purchase annuities.

At that point, once the new financial landscape is established, will it dawn on many that the difference that retirement has made to their disposable incomes & the sacrifices & cut backs that will need to be made. But surely retirement should be time to retire & relax & enjoy the fruits of one’s career?

The transition from a paid salary to a reduced fixed pension can be difficult and for some, one many never really come to terms with. There have been many cases at Equity Release Supermarket, whereby following the first few years of retirement we are arranging equity release for the consolidation of debts such as credit cards & loans. This was a result of continued spending following retirement without carrying out what should be a mandatory income & expenditure analysis.

2. Indebtedness – Many of these baby boomers reaching retirement have grown use to managing debt during their working lives. This generation have lived through vast fluctuations in the economy such as interest rates, inflation & the recent credit crunch. Having come through the worst of this & still showing such positive signs of equity, gives them the confidence of maintaining such debts into retirement. Afterall, this age group are probably the ones with the best repayment history, credit record, guaranteed incomes and all coming with security of tenure in their properties!

A recent study showed that one in six over 65’s expect to borrow money in retirement to meet their retirement goals. In fact in the last year alone, 16% of over 65’s applied for a loan or credit card. The issue nowadays is of course that credit is not as readily available and one in ten applications from over 55’s will be declined, as lenders become far less willing to lend into retirement.

This applies to mortgages also. Lenders are increasingly calling in mortgage balances from customers aged over 55. It’s estimated 1.3 million households over 55 are still paying their mortgage, of which 289,000 over 65 year olds are still saddled with a mortgage debt! These are the people who will be looking towards equity release solutions in 2014 & beyond.

3. Interest only Mortgage Prisoners – Worse still are the Financial Conduct Authority (FCA) figures confirming the size of the ‘interest only time bomb’ looming. Of the volume of interest only mortgages due for repayment by 2020, 1 in 10 of these mortgages have NO repayment plan and upto 1.3 million interest only borrowers face shortfalls averaging £72,000.

So how will these people find these shortfalls and where do they turn for advice?

Well as we mentioned, lending into retirement has been constricted by the FCA’s stance and with MMR (Mortgage Market Review) being implemented in April 2014, lenders are under further scrutiny as proof of affordability becomes entirely their responsibility.

Therefore, as we are already seeing by the upturn in the volumes of business, the equity release industry is becoming the saviour for the interest only mortgage short fallers. In providing an equity release safety net, many of these trapped borrowers have another option than having reluctantly to sell their homes to fund the shortfall.

However, the solution will only be made available should loan-to-values fall within lender criteria, which for lifetime mortgages are currently stand at a maximum of 30% at age 65, rising to a maximum of 54% by age 85. These calculations can be confirmed using the Equity Release Supermarket calculator.

However, two further factors could influence these results; health & lifestyle and incomes.

Firstly, should a history of adverse health be prevalent then a range of enhanced lifetime mortgage products are available which will release a greater lump sum than standard equity release schemes. Secondly, the signs are more retirement mortgages could be introduced during 2014. Already the Hodge Retirement Mortgage has been bravely launched against the tide of lenders withdrawing such products. Currently, the Hodge Retirement Mortgage will lend upto 50% of the property value at the current interest rate of 4.75% (5.1% APR), subject to income(s). Click here for details on the Hodge Retirement Mortgage or call 0800 678 5159.

4. House Purchase/Moving Home – we are seeing the data already in 2014 from mortgage lenders regarding the upturn in mortgage lending which has been due to the housing market improving significantly. With support from the government with its ‘Help to Buy’ scheme, this has stimulated the housing market from the bottom end and resulted in a knock on effect up the ladder.

We are seeing an increasing number of Equity Release Supermarket clients using interest only lifetime mortgage products to assist with their house purchase. We can advise on products from Stonehaven, Hodge Lifetime & more2life whereby the interest element & possibly more can be repaid back to the lender with no penalty, & are becoming a high percentage of our overall equity release plan recommendations.

Additionally, we are experiencing retirees at a critical point in their lives looking to downsize, or move nearer to their families. This could be for disability or financial reasons and moving into a retirement properties where less maintenance is required. Purchasing such property may still require finance to bridge any shortfalls, or create surplus funds for other financial/personal reasons.

5. Burgeoning Confidence & Optimism – There has been a silver lining to the issues of retirement finance…PROPERTY. Staggeringly, 69% of the over 65 year old population own their home outright & unencumbered. The most recent research has calculated the over 65’s own a combined £752 billion in housing wealth!

With this kind of security behind them and the changing attitude towards inheritance is beginning to shape the equity release landscape we are seeing & being developed as we speak. Traditionally, roll-up equity release schemes were the norm. Compounding of interest put many people off releasing equity. As a consequence, interest only lifetime mortgages have come to the fore. In being able to control the balance by making regular or ad-hoc repayments, one can now maintain a level balance, or even reduce it year-on-year. We have evidenced the growth in inheritance protection via lifetime mortgages and will become another of the factors affecting the growth in equity release for 2014.

Flexibility is key for many now entering the market. One major step forward for equity release mortgages came with the advent of drawdown lifetime mortgages. Here borrowers can withdraw tax free cash in stages from a pre-agreed facility. Drawdown equity release now accounts for over 64% of all plans written during 2013. Hence, another good factor to influence the popularity moving into 2014.

Finally, we have the latest news there will be a new equity release provider in early February – Pure Retirement will be entering the market with an initial 2 product launch, followed by more products they anticipate later in the year. This comes hot on heels of recent press murmurings over the weekend that L&G could soon be re-entering the equity release arena after originally departing in 2004 when they white labelled Northern Rocks equity release proposal. There is also much product development behind the scenes with Aviva revamping their lifetime mortgage. Details once known will follow on this website.

All this development and equity release press coverage stokes up the interest in a market that has previously been in the doldrums, but has listened to the consumer & now developing products to match retirement planning needs.

Summary – Equity Release 2014

Equity Release will take off in 2014 because providers have listened to their customers and they can be very demanding and rightly so. Customers want flexibility, they’ve got it, Customers want no early repayment charges, they’ve now got it, Customers want to repay capital without penalty, they’ve got it, Customers want to pay off the interest, they’ve got it, and customers want to partially repay the interest without being tied or committed, guess what? …they’ve got it!

There has never been a better time to consider equity release, so here’s to looking forward to 2014.

Call freephone 0800 678 5159 to discuss any aspects of this article or complete our contact form to register for 2014 updates as & when they are announced.

During 13 years of giving equity release advice, one of the first questions I ask new clients is whether they receive any means tested benefits or not. It’s a crucial part of the advice process as a professional adviser needs to check what impact, if any, equity release might have on vital state benefits that they receive.

It’s also really important to find out the exact income of every client to check for potential means tested benefit entitlement. I’ve interviewed equity release clients who didn’t even realise their entitlement and thereafter have subsequently made a successful claim which has led to extra available income.

How do I check to see if I’m eligible for benefits?

I would strongly recommend anyone who is about to retire, or is already retired, call the pension credit Freephone number to check for eligibility on 0800 991234 to get their situation individually assessed. You can also click on the attached link: https://www.gov.uk/pension-credit-calculator to check your eligibility online.

Similarly, you should also call your local council tax benefit enquiry helpline number to check for council tax benefit. The telephone number will be on your last annual statement. Usually, if you qualify for pension credit you should also be able to get a reduction of some or all of your council tax benefit.

As a part of my recommendation process, I would fully assess your financial situation which would also include reviewing your means tested benefits during our meetings. As the initial consultation is free, I place no financial burden on you, so use my experience to the maximum & see if there are further entitlements you could claim.

Qualification rules and how much benefit can I receive?

The earliest age you can qualify for pension credit was aged 60, but this is gradually increasing to age 66 from 2020. For tax year 2013/2014 pension credit should be available if a single person’s income is less than £145.40 per week, or £222.05 for a married couple. Your savings can also impact your eligibility for pension credit and council tax benefit but the relevant agencies do ignore the first £10,000 of savings that you hold. Savings between £10,000 and £16,000 can still mean that you receive some benefits but savings in excess of £16,000 normally mean you’re not entitled to any benefits.

From age 65 you may also be entitled to savings credit of up to £18.06 for single person and £22.89 for a married couple. You might be eligible for this as long as your income is less than £190 per week for a single person or £279 per week for a married couple.

Will I lose my benefits if I take a release of equity?

With advice from a skilled adviser at Equity Release Supermarket, you shouldn’t normally lose any benefits. If you’re already receiving means tested benefits and you’re thinking of equity release it’s best to have your situation analysed by finding a qualified equity release adviser. I also suggest that you contact the pension credit and council tax benefit helplines to discuss your situation. However, the rule of thumb is that if after releasing equity your savings are less than £10,000 your benefits shouldn’t be affected. Equity Release can be carefully planned to ensure that this this remains the case.

Brian was aged 65 and his home was worth £200,000. He wanted to release equity of £20,000 to buy a new car and bathroom but he was in receipt of pension credit and council tax benefit. As Brian was spending the money straight away there wasn’t any changes to his benefits, as he only kept his existing savings of £5,000 in the bank. He released £20,000 on the Aviva Lifestyle Flexi Plan and also had another £23,500 available in the reserve facility we created by recommending a drawdown equity release lifetime mortgage. Again, this money in his reserve doesn’t impact his benefits as it falls below the £10,000 limit imposed. He can thereafter take small amounts of at least £2,000 whenever it’s needed. This will mean that his savings are still kept below £10,000 and therefore not affect his benefits.

Terry & Margaret were both aged 67 and their home was worth £180,000. When they retired 2 years ago, Terry received a tax free lump sum from his pension which paid for a new car, a conservatory and they had a couple of holidays, but were left with less than £2,000 in the bank. They were in receipt of pension credit and council tax benefit. They could manage on their income but wanted funds to pay for a new kitchen costing £5,000 and wanted money for holidays over the next 10 years. Although they could release over a one off lump sum of around £50,000 from various equity release providers this would have proved catastrophic as they would have lost their entitlement to their much needed benefits. This is where careful planning by an equity release adviser can help. Instead they took out a drawdown lifetime mortgage with an initial loan of £10,000 to pay for their kitchen and for 2 holidays. They were also able to set up a reserve of capital of £41,000 with New Life and will be able to release regular withdrawals of at least £5,000 to fund their future holidays. This doesn’t have any affect on their benefits.

Please remember that state benefits rules can change at any time. Special rules apply to making gifts with equity release. The benefit figures above relate to tax year 2013/14 & maybe subject to change.

How do I get more information on equity release and state benefits?

Whenever you consider equity release it’s important to get a fully authorised equity release adviser to carefully check your situation regarding means tested benefits, as well as checking overall suitability of the schemes.

Here at Equity Release Supermarket, we’re able to help you with this during our meetings. We do not charge for your initial consultation which can be conducted either in the comfort of your own home or over the telephone, to suit.

I recently read an advertisement in a National newspaper extolling the virtues of Equity Release and was surprisingly written on behalf of one of the main equity release brokers based in Preston. All fine I thought until I saw that it was aimed at grandparents struggling to buy Christmas presents for their grandchildren.

It created a small furore amongst my colleagues and peers. The blogs were alive with advisers & political commentators slating the fact that equity release was being considered for such short term measures. Not only that, but to take equity release to spend on the grandchildren, would effectively be spending their own inheritance! With the compounding effect of the interest over the remaining years, this will turn out as one expensive Christmas present.

After all, the most popular type of equity release is the lifetime mortgage; appropriately named & for a reason. These schemes are designed for longevity, not short term or for frivolous reasons, where better alternatives may exist.

Some were arguing that whatever legal reason people wanted a release of equity for, withdrawing capital was their choice, not ours as advisers, and on the face of it that is correct.

However, when I looked into this scenario further this played on my conscience for personal reasons and I had serious reservations.

I have five grand-kids, all under five years old. I had to check with my wife, but on average we spend about £150 to £200 on each. Extravagant ? Maybe. Worth it ? Definitely.

With various other gifts for family and friends we spend about £1,500. Agreed not easy on low pension income and little liquid savings.

If I was in that position and saw the advertisement I would almost certainly look into the possibility of equity release schemes. I would hope that I would employ the services of an independent equity release adviser i.e. someone like me who would strongly advise not to go down this route.

And here are the reasons why:-

The minimum initial lump sum on any equity release scheme is currently £10,000. This would have to equate to £2,000 for this Christmas, £8,000 in the bank for the next 4 Christmases. The cash in the bank may attract 1-3% interest whilst I would be paying up to 6% interest on the mortgage. Not a good idea

The set up fees, depending on the lender, could be as high as £2,000. Acceptable if you are considering a large expense such as buying a new car, a holiday of a lifetime, clearing an mortgage or giving the grand-kids a start in life for house deposit or university fees. Therefore, as a proportion of a £10,000 release, set up costs can be a considerable percentage of the initial release. Not so good to borrow £2,000 for Christmas gifts on this basis.

If, like me, your intended beneficiaries are your grand-kids then they are actually buying their own gifts via their future inheritance. Let’s assume £10,000 on a normal roll-up lifetime mortgage, even on the lowest rate with Aviva Flexi Plan currently at 5.62% (5.8% APR) and deducting the set up costs from this, would in 10 years have accrued to about £17,276. So 10 year’s worth of Christmas gifts has cost £7,276.

I applaud the fact that some of the broker companies are bringing Equity Release to the fore and the pros and cons of equity release schemes are highlighted to the general public.

As a dedicated Equity Release specialist I am convinced of the merits of raising capital by these means as long as the following measures are taken: –

All possible alternatives are discussed with your adviser and broached with the children. Equity release is classed as a loan of last report by ourselves

The initial release matches your needs for the first 12 months of your spending plans i.e. don’t take any more than you actually need

A new and rather unusual expression has recently emerged which is the term – ‘silver splitters’. It hasn’t made the Oxford Concise Dictionary yet, but I suspect it’s just a matter of time!

Figures released by the Office for National Statistics (ONS) for the year 2011 reveal that 8% of all men divorcing in the UK were aged 60 and over. The equivalent figure for women aged 60 and over was 5%. Compare this to 2001 when these figures were 4.6% and 2.6% respectively.

While overall figures for divorce have been falling, divorce amongst the retired and elderly have been increasing significantly, resulting in financially strained circumstances for many at a time when they should be enjoying life.

This increase in the number of silver splitters appears to be the result of the ‘baby boomer’ generation reaching retirement, experiencing the empty nest syndrome with children departed, looking at each other and deciding that they have little in common. Matters take their course and separation is followed by divorce.

Next follows the murky area known to the legal profession as ‘ancillary relief’ which is quite separate from the divorce itself (or ) and is concerned with the financial settlement between the parties. In the absence of an amicable agreement the family court can dictate how the assets in the marriage are shared out, and that includes the matrimonial home irrespective of whose name is on the deeds.

This is where help from equity release can come into play to facilitate the financing of any payment between the divorced parties and to alleviate the prospect of poverty and homelessness for either ex-spouse.

Silver Splitters Case Study

Let us take an example. A couple, both aged 65, jointly own a property valued at £300,000 and they have paid off their mortgage. They decide to divorce but the wife wishes to remain in the family home and as the split is amicable the husband is willing to accommodate her wishes, but in exchange for a cash payment. By applying for a lifetime mortgage at the age of 65 the wife can raise up to 30% of the value of the home, i.e. £90,000. The property is transferred into her sole name and simultaneously the lifetime mortgage proceeds of £90,000 are paid over to the husband.

This leaves the husband with £90,000 cash which he can use as a deposit on a property for himself. Being 65 he can also raise a 30% lifetime mortgage on his new home and this enables him to buy a property for say £128,500 (i.e. cash £90,000=70% and lifetime mortgage 30%=£38,500).

Alternatively, if both parties in my example agreed to sell the matrimonial home and split the proceeds equally then prospects look brighter. With say £150,000 each as a deposit and with a 30% contribution from a lifetime mortgage, my divorced couple would each be looking to buy new homes in the region of £214,000. (These examples do not take fees into account but these would be roughly £1,800 for both parties, plus moving costs).

The husband and wife could have two options on the types of equity release schemes available. They could elect to make no further payments to make for life and opt for the roll-up lifetime mortgage which would see the balance increasing yearly.

Alternatively, they can apply to take out an interest only lifetime mortgage and repay the monthly interest which would render the lifetime mortgage balance the same throughout. This is ideal should they be considering leaving a fixed inheritance for their beneficiaries.

How is the equity release mortgage repaid?

Dependent on which type of lifetime mortgage is selected, the final balance is usually upon repayment of the loan and any accrued interest takes place on death, entry into residential care or earlier sale of the property.

And the option to avoid monthly interest payments could be very attractive to divorced ex-spouses on reduced pension incomes. This is maybe the reason why the roll-up equity release types are the most popular?

Equity release is increasingly being used to fund divorce settlements, either by the parties themselves or by concerned parents. If you find yourself in a similar situation in experiencing divorce in retirement and need financial advice on how to separate the matrimonial home then please contact Mike Vicary of Equity Release Supermarket on 07795 195302.

All discussions will be kept in strictest confidence and any initial consultation will be FREE of charge. I look forward to speaking with you.

Equity Release Supermarket can today announce the launch of the new Hodge Lifetime Retirement Mortgage Plan.

Only available through a selected number of intermediaries, the plan aims to provide a solution to the crisis surrounding the repayment of interest only mortgages.

Many articles have been written highlighting the plight of 2.6 million interest only mortgage holders who have no repayment strategy in place at the end of their mortgage term. Today marks the equity release industries response to this crisis.

Hodge Lifetime has identified the growing crisis in people approaching retirement with interest only mortgages and no exit strategy. There have been many reasons for this situation such as poorly performing endowments, pension plans, ISA’s or simply that no repayment plan was ever in force.

The question for interest only mortgagors is how are they ever going to repay the mortgage balance?

Equity Release Supermarket is experiencing an increasing number of enquiries by people looking for an emergency repayment route from their existing mortgage provider. Where once lenders were willing to extend the mortgage term, under new FCA guidelines there is now a reluctance to extend the mortgage term, leaving repayment as the only option.

The options available to repay this debt include downsizing property, remortgage to an equity release scheme, transfer to another interest only mortgage, or cash in any available investments. Each of these can present their own set of problems.

For those looking to downsize is the ability to sell the property within the timescales provided by the mortgage lender. Equity release schemes may present limitations as to how much they can lend as they are based on a loan-to-value ratio. Depending on age, a conventional mortgage may not be available as they will not usually lend beyond age 75. Investments may not be available if used for income, or even present at all.

How The Hodge Retirement Mortgage Plan Can Help

Hodge Lifetime is launching a mortgage product to compare to the Halifax Retirement Home Plan which proved immensely popular until its withdrawal in August 2011.

Similar in concept, it enables people between the ages of 55-70 to remortgage their properties for any purpose. The amount borrowed is based on income multiples rather than a loan-to value ratio, as with equity release schemes.

Monthly payments of interest are then made to the lender until age 80, effectively maintaining a level mortgage balance. At that point a decision can be made as to whether you wish to continue with the payments for life, or cease & allow the interest to roll-up thereafter. The latter option would result in the mortgage balance thereafter increasing for the duration of the term.

By using affordability as the basis for lending criteria means people on good retirement incomes can borrow upto 50% of the property value with Hodge, subject to income. Compare this to the current interest only lifetime mortgage lender – Stonehaven, who would only lend a maximum of 19% at age 55.

Therefore, on a property valuation of £250,000 the difference between the two schemes is a significant £77,500.

Features of the Hodge Lifetime Plan

Flexible Repayment – Hodge will allow 10% capital repayment each year upto year 6 with no penalty

Fixed Early Repayment Charge (ERC) – over the first 5 years the penalty decreases from 5% down to 1% of the capital repaid. No ERC exists after year 6.